Capturing Benefits from Tomorrow’s Technology in Today’s Products: The Effect of Absorptive Capacity

by Daniel Snow

Executive Summary —
It seems clear that firms with an existing R&D function are better able to use related outside research than firms without an R&D function. But can specific products also "absorb" a firm's knowledge of related technologies? Using patent data and the example of automobile carburetors, Daniel Snow studied how companies may adapt a component of a "radical innovation" technology for their own current-technology products. He also poses a far-reaching question for companies: Can they capture the returns of these inventive activities? Key concepts include:

Firms that have experience working with a "future technology" or radical innovation can efficiently adapt components from such innovations for their own current-technology products. They are also more likely to adapt such components.

For any positive effects, the future-technology components should already be closely related to the product's current components.

Whether firms can capture the returns of their own inventive activity may boil down to the fact that intellectual property is difficult to protect: The possibility of free-riding may affect firms' willingness to invest in future technologies.

Author Abstract

In this paper, I propose and examine a specific means by which firms' R&D experience may be helping firms to improve their current-technology products: Firms that conduct future-technology R&D may be better at adapting components from related future technologies for use in their current-technology products. I use patent data to test whether automobile carburetor suppliers with higher levels of future-technology R&D activity are better at adapting components from related future technologies for use in carburetors.